Global airlines raise 2017 profit forecast

by Garry Watts June 7, 2017, 10:48
Global airlines raise 2017 profit forecast

To ensure that air cargo is ready to benefit from the expected United States dollars 1 trillion boosts in trade growth arising from the TFA and the improving global economic environment, we need a major overhaul of industry processes. This is owing to the restructuring of the industry, a relatively strong economy and a resilient USA dollar. "On safety, the region's carriers achieved a major milestone with zero jet hull-losses in 2016".

But IATA warned U.S. airlines had less of a buffer against fuel price rises and faced a tight labour market with rising wages. A tight labor market is adding more pressure to profits by pushing up wages.

It committed the airlines to implement prescribed security standards and recommended practices to the highest level, support governments in the development and implementation of additional security measures when required to protect air transport, besides implementing the industry- driven aviation security initiatives such as Smart Security, Passenger Name Record (PNR) /Advance Passenger Information (API).

Mr Alexandre de Juniac, director general of the International Air Transport Association (Iata), said the violence in London could discourage potential visitors as similar attacks did in Europe past year.

He said the confidence of the public and the airline industry "has been rattled by inconsistencies in how some states have responded to concerns over the potential for explosives to be concealed in large portable electronic devices".

Higher operating costs are becoming the "emerging challenge for the airlines", the IATA's chief economist Brian Pearce warned at the association's AGM in Cancun.

But Alexandre de Juniac, CEO of the IATA group that represents 265 airlines worldwide, repeated calls on Monday for governments to find alternatives to the ban. "And the $7.69 average profit per passenger still does not provide a thick buffer to economic shocks".

That equates to $US7.69 per passengers, down from $US9.13 in 2016 and $US10.08 in 2015.

It said the average net profit margin stands at 4.2% (down from 4.9% in 2016). "For a third year in a row we expect returns that are above the cost of capital", de Juniac added. "Airlines must remain vigilant against any cost increases, including from taxes, labour and infrastructure", said de Juniac.

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IATA raised its airline industry profitability outlook for 2017, citing strong overall performance. Latin American and Mideast carriers are expected to earn $800 million and $400 million respectively, while those in Africa may lose $100 million, all improvements on prior projections.

Airlines have criticized March decisions in the US and the United Kingdom to prohibit electronics larger than cellphones in carry-on bags for flights from specific countries in the Middle East and Africa.

Underlying this performance is a strong demand environment. The IATA traffic report for April says that passengers are avoiding routes where the large PED ban is in place.

It said total cargo carried is expected to reach 58.2 million tonnes. That includes air cargo, which has awakened from a six-year coma. Industry revenues are expected to increase to $743 billion, $38 billion more than 2016.

Some regions will still see some modest benefits from hedges but this will be insufficient to offset the rise of other operating costs, according to IATA.

Asia Pacific will contribute $7.4b to the industry total. This assumes an average price of Brent crude of $US54 a barrel, up from $US44.60 in 2016, with jet kerosene prices averaging $US64 this year.

Meanwhile, Singapore Airlines chief executive Goh Choon Phong has commenced his one-year term as IATA chairman, following the conclusion of the 2017 annual general meeting. Nevertheless, "We are the business of freedom". The safe and efficient global movement of goods and people is a positive force in our world.

During his keynote speech, he said that industry representatives will discuss the best solutions to continue to boost and promote its catalytic role in global prosperity.

"In parts of the world, nationalistic political rhetoric points towards a future of more protectionism", he said.

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